Pentagon Bookkeeping Stops Auditors

by AccountingWeb on Feb 20 2006printer friendly

The Department of Defense (DOD) has failed its audit to the extent that auditors have stopped wasting money trying to audit their books, according to Black Enterprise. Problems with the Pentagon books has allowed the DOD to pay troops, civilian workers, and contractors the wrong amounts; to lose track of equipment, such as planes and tanks; and to document trillions of dollars in transactions improperly, according to Black Enterprise. Gregory D. Kutz, managing director of the General Accountability Office (GAO), told Congress last summer that these accounting problems would cost taxpayers $13 billion in 2005. The GAO is the investigative arm of Congress.

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The “clean audit” of DOD books scheduled for 2007 is not in sight, according to Black Enterprise. The DOD has received a “clean opinion” on only 16 percent of its assets and 49 percent of its liabilities as of June 2005, according to Thomas B. Modly, deputy undersecretary of defense for financial management. Black Enterprise reported that Modly said the DOD hopes to settle their balance sheet on 47 percent of assets and 49 percent of liabilities by 2007.

It might help to understand the problem by understanding the size of Pentagon operations. Black Enterprise reports it had in fiscal year 2005:

$1.3 trillion in assets

$1.9 trillion in liabilities

3 million in personnel

$635 billion in operational costs

2,569 facilities in the country and 807 outside of the United States

One of the other problems cited is that DOD has about 5.2 million items in its inventory, according to Modly. Wal-Mart only has 11,000 and Home Depot only has 50,000 inventory items, according to Black Enterprise. Another problem is the gridlock of some 4,150 different business operations, including 713 different human resources systems.

Jack Minnery, a Defense Finance and Accounting Service accountant, told Black Enterprise, “The Pentagon wasn’t in the business of making money, so they never needed an income statement. They expensed their assets like planes and buildings and such. They dished money out, and they never kept track of what they owned.” Minnery continued, “That’s one of the main reasons I don’t believe they’ll ever have a clean [audit].” Minnery complained about missing money in 2002 to earn his label as a whistle-blower.

Minnery told Black Enterprise, “Their systems can’t keep track of who they’ve sold stuff to, who owes them, who they owe.” Concerning the inter-service gaggle of ordering codes, Minnery said, “The Navy has a set of [codes], the Army has a set, the Air Force has a set. They don’t have the same number of digits, and they don’t match each other.”

In 1990, the GAO started assigning some government agencies to a “high risk” list. DOD’s supply chain and weapon systems acquisitions have remained on this list since that time and six other defense divisions made the list in 2005. Danielle Brian, executive director of the watchdog group Project on Government Oversight, told Black Enterprise, “Nothing’s gotten better. It keeps getting worse.” Knoxstudio.com reports that Jeffrey Steinhoff, GAO’s managing director for financial management and assurance, said, “They’re not close to the finish line. They have a long way to go.”

Untangling the mess has seemed elusive except “by making the business process support the war-fighter more effectively, we are seeing a significant amount of momentum,” according to Paul Brinkley, deputy undersecretary of defense for business transformation. Effective might be an overly optimistic opinion as Black Enterprise reports that the government spent $179 million on two automation systems meant to resolve disbursement problems that failed, according to the GAO.

Winslow T. Wheeler, director of a military reform project at the Center for Defense Information (CDI), told Black Enterprise, “We don’t know how badly managed it is. It’s not that DOD flunks audits, it’s that DOD’s books cannot be audited. DOD aspires for the position where it flunks an audit. If this were a public company, it would have gone belly up before World War II.” CDI is an independent monitor of the military.

In more wasteful news, Stuart Bowen, special inspector general for Iraq reconstruction, told Political Gateway that $8.8 billion is unaccounted for due to inadequate oversight from Coalition Provisional Authority (CPA) that “was relatively nonexistent.” Bowen is in charge of tracing the funds.

Frank Willis, the former number two official at the CPA transportation ministry, told Political Gateway that the CPA kept billions in cash to pay for its projects because Iraq is without the financial infrastructure that would support the use of checks or money orders. Willis said, “I would describe (the accounting system) as nonexistent.” Willis told a CBS interviewer, “Fresh, new, crisp, unspent, just-printed 100-dollar bills. It was the Wild West.”

In other wasteful news, the GAO has released a report finding that the Bush Administration spent more than $1.6 billion in public relations and media contracts over two and a half years, according to the California Chronicle. Congressman Henry A. Waxman, (D-Calif.), House Democratic Leader Nancy Pelosi, (D-Calif.), and Congressmen George Miller, (D-Calif.), and Elijah E. Cummings, (D-Md.), with other senior Democrats, released the report.

The government hired firms to develop “video news releases” to promote department initiatives that appeared as independent newscasts to television viewers. The California Chronicle reports that the GAO report also shows that conservative commentator Armstrong Williams was paid to promote the No Child Left Behind Act in the media. The DOD spent $1.1 billion on media contracts. Learn more about the GAO report at http://www.democrats.reform.house.gov.[3]

The California Chronicle reports that Congressman Miller said, “The extent of the Bush Administration’s propaganda effort is unprecedented and disturbing. The fact is that after all the spin, the American people are struck with high prescription costs, high gas prices, and high college costs. The report raises serious questions about this administration’s priorities for the country and I would hope that my colleagues on both sides of the aisle would agree that changes need to be made to reign in the President’s propaganda machine.”